Category Archives: ICDCI

Lamu, Kenya and Amu Power – Part II

See Part I of the visit to Lamu with Amu Power

After the morning session with the county officials, we had a chance to visit the planned site of the Amu Power coal plant at Kwasasi, on the mainland. This was my third visit to Lamu in four years, but my first chance to visit the mainland of Lamu County.

The Lamu islands are incredibly beautiful, and once you experience Lamu, you are unlikely to look at Mombasa the same way again. It’s a beautiful place for tourists to visit; boat rides, the endless beaches of Shela, the quaint town with tiny streets, curio shops, friendly residents,  ancient buildings, tasty foods served on roof top restaurants, and a world heritage status conferred on the town.

Also for tourists who come to Lamu, unlike travel to Mombasa where they have to contend with at least an hour of traffic around both Jomo Kenyatta and Moi airports, they can fly to Lamu having skipped the traffic bit by using Wilson airport in Nairobi, while in Lamu, there’s no such thing at traffic – as you land on Manda island, walk 300 meters and get on a boat that can get you to a hotel or villa within ten minutes. But while it’s beautiful for tourists, life is not getting better for residents. The boat rides are expensive, unemployment is high, and education is low, and the land has other challenges.

Mainland jettyTo get to the Kwasasi site, we took a 15-minute boat ride to Mokowe jetty where several taxis were waiting. Mainland Lamu, which borders Somalia about 100 kilometers away, has been in the news over the last two years due to sporadic attacks and incidents, with the most catastrophic being Mpeketoni in June 2014, where 48 people were killed by a terror gang.

The first stop after stepping off the ferry on the mainland was to drive to the local police station to collect some armed policemen that the company had hired for the day. After that it was a long drive over about an hour that covered about 30 kilometers on narrow dry dusty roads. Lamu County is said to have 6 kilometers of tarmac, but this main road on the mainland had none.

Eventually, we got to a Navy base, which also marked the edge of the port area. This was our starting point and we drove along the fence of the navy base, which had a road then away from the fence with satellite tracking devices to pinpoint the coordinates of the corners of the site and this took about two hours to navigate. Amu Power had contracted a landscape architect to produce real life drawings of what the plant would look like in the current environment, and he took several pictures at each corner of the site and strategic points on the road.

Kwasasi 1The site of the plant was a large plain field with sparse bush. This was a shock as I expected to find warehouse sheds, office and residential buildings to mark the edge of a LAPSSET (The Lamu Port Southern Sudan-Ethiopia Transport Corridor) port city. But the place was sparsely populated and devoid of structures or developments.

This was apparently communal land, but there were sticks in the ground to mark boundaries in some places and burnt bushes in other places presumably for cultivation clearing. In some places targeted for LAPSSET projects, speculators in the area have pushed up the price of land five times in the last few years.

Another shock was seeing many women and girls walking along the road with yellow 20-liter drum, full of water. This is an arid area, with few water points and the role of fetching water is one performed by women who walk long distances. We later stopped at one of Amu Power’s CSR projects, which were a series of water tanks at a  central point to which a company lorry delivers water every week for area residents to use. It should not be the business of prospective investors to provide water, but that’s the reality of doing business in many parts of the world, and the water delivery has made life easier, with more to be done.

Hindi water pointAmu Power has plans for the construction of a water desalination plant, which will be the first ever, built in Kenya, and the excess of this will be shared with the local community.

We left just before sunset and asked the taxi driver about the ongoing curfew that was in the area. He said it was still in force, but had been relaxed of late.

After we got back to the Island we had a few more talks to recap the day. Earlier, one of the community leaders has  talked of the challenges Lamu had faced and why it had remained largely unchanged 50 years after independence with issues like  water shortages, transport challenges and lack of roads. He said, while Lamu was poor, there had been resistance to several past attempts to introduce development projects  in the area– including a fertilizer plant, the new port (because it would spoil fishing), and wind power in Shela (because it would spoil the water).

Kwasasi 2The day after the visit, as we prepared to leave and fly back to Nairobi, we started hearing reports of the ongoing attack at the university in Garissa. The full scale of the attack did not become apparent till later in the day.

It is expected that President Uhuru Kenyatta will be in the area in a few weeks to commission the first three berths of the Lamu port that is set to be completed in 2019.

The port, crude oil pipeline, the coal plant in Lamu and Lamu-Garissa-Isiolo Road will raise the profile of Lamu and thus the government’s investments to enhance the security profile of the area. The fringe benefits of this infrastructure will be to open up the Eastern and Northern part of Kenya to development and settlement, the way that the British railway did over 100 years ago between Mombasa and Kisumu.

Clearly, not only is change coming to Lamu, change has to come to Lamu. The LAPSSET projects and the coal plant are about 30 kilometers from Lamu town and the picturesque islands that most people in Lamu are familiar; that’s about the distance from Mombasa island to Diani beach and its possible that the two will coexist and mutually benefit like the South coast neighbours.

Kenya gets Coal Power

Amu Power is a consortium of Gulf Energy on the technical side and Centum Investments who will do the funding side aims to be the only locally owned independent power producer and will produce 960MW  via coal power at the Kenyan coast.

The plant will be designed and built Chinese partners, supported by the ICBC, the world largest bank, with partial guarantees of the African Development Bank and built to World Bank standards for coal plants. The total cost of the project will be $2 billion and about  Kshs 36 billion will be spent in 21 months of construction around Lamu i.e. about Kshs 1.8 billion in a county that has an annual budget of Kshs. 1.6 billion

The backers are trying to work with the local community where there’s a local unemployment problem; they will need, train, and employ local certified welders plumbers, masons, bricklayers etc. Amu is planning to lease land from the Kenya Ports Authority in Kwasasi on the mainland (not on any of the Lamu islands) for their 100-acre plant that they will operate for 25 years. Coal plants are always set up next to large bodies of water and they plan for excess water they desalinate to be shared with the town people.

The Intention is to use coal from Kitui, Kenya once production there starts but the plant will be built to use South African grades of coal that may be imported in the interim. The founders say coal is necessary for industrial growth to a scale that hydro and renewable energy can’t match. South Africa is 94% powered by coal, the US 43%, China 81% and India 68%.

Shares Portfolio February 2015 

Compared to last quarter, the portfolio is up 26% while the NSE 20 share index is up 3% since November 2014.
snoop
The Stable
Bralirwa (Rwanda) 
Centum (ICDCI) —
Diamond Trust —
KCB ↑
Kenya Airways ↑
Kenya Oil ↑
Mumias ↑
NSE ↓
Safaricom ↑
Scangroup ↑
Stanbic (Uganda) ↓
Unga ↑
Changes
In: None
Out: None
Increase: None
Decrease: None
Best performer: Mumias Sugar  (up 58% this quarter), then Kenya Airways  (38%)
Worst performer: Stanbic – Uganda (down -5%) , NSE (-4%)
Looking Forward To
– Bank profits & dividends from banks (KCB, Diamond)
– More M&A deals from Centum

Reading the Tea leaves at Centum, Kenya Airways, Safaricom

Three companies that had their year-end in March 2014 have just published their annual reports which are now found on their individual websites. 

Centum
Has  a (massive ) 160 page annual report and 37,000 shareholders

  • At the August 2014 AGM shareholders will be asked to approve items including:
  1. The incorporation of Two Rivers Property owners Company
  2. The incorporation of Two Rivers lifestyle Centre limited Kenya branch
  3. The acquisition of 30% shareholding in Broll Kenya
  4. The acquisition of 73% shareholding in Genesis investment Managers Kenya
  5.  The incorporation of King Beverages
  6. The incorporation of Bakki Holdco
  7. The incorporation of Shefa Holdings

Other Notes

  • Rent income went from Kshs 6 billion in 2013 to Kshs 17 million in 2014?
  •  Other income was Kshs 443M, up from 12M
  • Cash flow went from Kshs 1.5B  to (minus)  -448<
  • The restated accounts have Kshs 237M paid to company shareholders, yet there are no dividends declared to be paid this year
  • For Genesis, they paid 1 billion for a company worth 153 million
  • They raised Kshs 4.1 billion in 2012 at about 13%
  • Centum Exotics owe Kshs 2 billion, Centum developments owe 1.8 billion and Two Rivers owe 2.5 billion to the company
  • 81% of investments are in Kenya, 13% in East Africa, and 5% outside and 87% of the groups assets are not held on any stock exchange. Centum’s investments include 17.8%  of General Motors East Africa, 15% of NAS Air  services, 27% of KWAL, 27% of Nairobi Bottlers & 43% of Almasi (Coca Cola bottlers), 35% of Platinum Credit, 1.6% of K-Rep bank, and 21.5% of AON Minet & 13.8% of UAP insurance companies

Kenya Airways (KQ)
130 page annual report and has 77 000 shareholders.

  • Are owed Kshs 156 million of Precision Airline of Tanzania (down from 242M)  and they own 41% of the airline.  KLM owns 27% of KQ. KQ are owed 4 billion by Aircraft Cargo Handling  and they owe the company back 7 billion
  • Have 12 year loans with Afrexim, Citibank, Stanchart that are guaranteed by USEximBank, while Co-Op bank financed purchase of a spare Embraer engine. The loans are at rates of 3.5 to 6.5%, and total $1 billion
  • KQ has paid Kshs 27 billion in airline deposits, and got a refund of about Kshs 2.8 billion in 2014 (from Boeing?). KQ also has Kshs 26 billion of aircraft lease commitments in the future.

The B787-8 aircraft will replace the B767- 300s on a one for one basis. The B777-300ERs provide growth in capacity. The B737-300s exit the fleet as JamboJet gains it’s Operating Certificate and determines its own fleet requirements. Two of the E170s will be returned to the lessor as will two B737- 800s, which will be replaced with new leased aircraft. KQ Embraer 190

The most important project for the Information Systems team during the year under review was the Boeing 787 e-Enabling project. The project was set up in February 2013 to implement the e-Enabling platform design recommended by Boeing for the B787 aircraft. The purpose of the e-Enabling platform is to ensure secure transfer of B787 Aircraft Software from Boeing servers to Kenya Airways servers and subsequently into the B787 aircraft.

  • JamboJet lost Kshs 118 million so far, but KQ will apply a deferred tax of 221 million from Flamingo, their previous low cost subsidiary airline against that
  • KQ sas 4,000  employees and also has an ESOP that has been inactive since 2006 (with 2 million shares) . While outgoing CEO Naikuni (famously) still has no shares, directors with shares include Alex Mbugua with 25,000 while Chairman Evans Mwaniki has 42,000.
  •   Spent Kshs 40 billion on fuel & oil, and 8 billion on aircraft hire. Have  Kshs 1 billion in fuel derivatives
  • Have Kshs 106 billion in revenue (85% from passenger flights) and 89% of revenue is foreign (i.e. non-local flights) and they fly to 62 foreign destinations
  • Putting a damper on Africa Rising, the Chairman’s statement notes that

African airlines international air travel expanded by 5.5% in 2013, a solid result but slower than growth in 2012 (7.5%). Overall, the demand backdrop for carriers in the region was strong, with robust economic growth of local economies and continued development of internationally trading industries. But some parts of the continent showed weakness, including the South African economy which recently experienced a slowdown. There has also been some slowdown in regional trade growth

  • The Kshs 5 billion loss in 2014 is an improvement from an 11 billion loss the year before.

Safaricom
136 pages and has 660,000 shareholders.

  • The Communications Authority (ex-CCK) gave Safaricom credit of Kshs 542 million against a license of Kshs 696 million.

Safaricom’s operating licence was issued for a period of 15 years from 1 July 1999 to 30 June 2014. On 25 June 2014, the Communications Authority of Kenya (CAK), formerly the Communications Commission of Kenya (CCK), confirmed the renewal of Safaricom’s operating licence for a further ten years from 1 July 2014 to 30 June 2024 at a renewal fee of USD 27 million.

  • Own 32% of TEAMS  (up from 22.5%). The company  acquired 10% at a cost of (just) Kshs 550, 620?!  TEAMS  had revenue of Kshs 382 million and a profit of Kshs 42 million in 2014. In 2013 they paid Kshs 556 million for the remaining 49% of One Communication which also has a deferred tax asset of Kshs 204 million.
  • There is an M-Pesa holding company that is separate from the company and who are trustees of all the funds that are held in M-Pesa. There is also a Safaricom Foundation that participates in many (small) projects and an M-Pesa foundation that is involved in larger (and fewer) projects.
  • Have Kshs 12 billion of bonds that retire in the next 18 month (7 billion in Nov 2014 and 4.2 billion in Dec 2015)
  • Bonga points; 84% of the points redeemed were for non-merchandise items (airtime, voice minutes, data bytes and SMS) while 16% were redeemed for merchandise items (phones, tablets?) in 2014.
  • The company bid and won a Kshs 201 million deal to brand Kasarani stadium and gymnasium
  • Lipa Kodi has 88 housing agents collecting rent from 60,000 houses while 122,000 merchants have signed on with Lipa Na M-Pesa
  • Directors: Chairman Nicholas Nganga has 885,00 shares, Michael Joseph has 2.3 million, Esther Koimett 517,000 and CEO Bob Collymore has 908,000
  • The newspapers in August 2014 note that shareholders will be asked to approve base station purchase from Yu for $1 million

NSE Moment: Buyouts, Vultures, Divestments

A look at recent deals at the Nairobi Securities Exchange (NSE) and other privatization and equity bids since the last update. 

Divestments

  • Essar released a bombshell from India that they would be abandoning their investment in the old Kenya Pipeline Refineries and sell their stake back to the Kenya Government for $5 million. At the same time a Receiver Manager put up (the closed) Pan African Paper Mills up for sale, but that is likely to be complicated by links the company had with vulture funds who purchased Panpaper’s debts in the international secondary debt market. These faceless entities — basically different mutations of one group (going by the names like Noon Day Asset Management Asia and Farallon Capital Institutional Partners) — and 11 such firms own 37% of the company’s debt.The Essar fallout prompted Parliament to also look into the mystery of Orange Kenya which keeps asking for more government support even as the government loses equity in the company.Since then, the government announced that a new office will advise the government on state investments: Attorney-General Githu Muigai said the Government Transaction Advisory Services Office will guide state deals with the aim of sealing opportunities where the latter has been losing its shareholding in parastatals without monetary gain.  
  • EDIT: Another divestment is Kenya Wine Agencies Limited (KWAL) finally exiting Uchumi after disposing of all its shares. It had 18% in 2004 and 4% in 2012. – via @NSEKenya 

Done Deals

Recent M&A deals approved by the Kenya Competition Authority include:

  • Agri-Business: The acquisition of Juhudi Kilimo (turnover of Kshs 30 million) by Soros Economic Development Fund.
  • Aviation: The acquisition of Lady Lori Kenya by Ian Mbuthia Mimano, Adi Vinner and Peter Nthiga Njagi.
  • Education: The  purchase of 60% of Safer World Investments by School Operators Limited (owners of Peponi School) (The two will have a combined turnover of Kshs 672 million or ~$8 million)
  • Finance & Banking: The acquisition of Francis Thuo & Partners by Equity Investment Bank.
  • Food: The acquisition of 66% of Coca-Cola Juices Kenya by the Coca-Cola Export Corporation.
  • The acquisition of Lonrho PLC by FS Africa  (as part of a $280 million deal in South Africa).
  • The acquisition of Ma Cuisine by Harper Holdings.
  • Health: The acquisition of Jampharm Chemist by Viva Afya (the two have a combined turnover of Kshs. 19.5 million).
  • The acquisition of Ascribe Group (which has a turnover of Kshs 70 million) by Emis Group.

Deals Bubbling

  • Brookside Dairies have taken over Buzeki, the makers of Molo Milk, in a Kshs 1.1 billion ($13 million) deal that increases Brookside’s share of the dairy market to 44%.  – EDIT GAZETTE NOTICE No.  15068 – THE TRANSFER OF BUSINESSES ACT: NOTICE is given that the furniture, fittings, fixtures and the assets and the stock being the business of manufacturing and selling of milk and milk products owned by Buzeki Dairy Limited (the “Transferor”) on the premises situated at Ganjoni, Mombasa have been sold and transferred by the Transferor to Brookside Dairy Limited who will carry on the said business of manufacturing and selling of manufacture of milk and milk products at the premises of Brookside Dairy Limited under the name and style of Brookside Dairy Limited (the “Transferee”) with effect from 1st November, 2013 (the “Completion Date”).The address of the Transferor is Post Office Box Number P. O. Box 85532-80100, Mombasa, Kenya. The address of the Transferee is Post Office Box Number P.O. Box 236–00232 Ruiru, Kenya. The Transferee is not assuming nor does it intend to assume any creditors or debtors of the Transferor incurred in connection with the purchase and business of the assets of the Transferor up to and including the Completion Date and the same shall be paid and discharged by the Transferor and likewise all debts and liabilities owing and due to the Transferor up to and including the Completion Date shall be received by the Transferor. Dated the 5th November, 2013. KIPKENDA & COMPANY ADVOCATES, Advocates for the Transferor. COULSON HARNEY ADVOCATES
  • Centum shareholders approved new investments in Liberty Beverages, Mvuke Power, Two Rivers Lifestyle Centre, Centum Share Services, Centum Asset Managers (who are buying Genesis Kenya)  and the acquisition of 79% of Kilele Holdings.
  • Africa Media Venture (AMVF) a Dutch-based venture capital firm has raised its stake in a Kenyan restaurant guide website, EatOut, from 25% to 32% for Kshs 17 million ($200,000) in a transaction that values the online portal at Kshs. 220 million.  
  • Lonrho is selling its entire stake (11%) in African airline Fastjet. 
  • Crystal Ventures (owned by the Rwanda Patriotic Front) plan to sell their 20% stake in MTN Rwanda, in an IPO which will make MTN Rwanda the third company listed on the Rwanda Stock Exchange – after Bralirwa and Bank of Kigali.
  • Sameer Investments is buying out 41 million shares that Bridgestone owns in Sameer Africa – after which Sameer will own 159 million shares equivalent to 72% of the company.
  • Across the border, Tanzania’s Precision Air is looking for a government investment, just a year after an IPO which raised $7 million and reduced the shareholding of Kenya Airways from 49% to 35%
  •  Unga Group will acquire Ennsvalley Bakery for Kshs 125M ($1.5 million) and also dispose of its shares in Bullpak.
  • EDIT: Kestrel Capital has arranged a $1.2 million private placement of convertible debentures in Stockport Exploration to local Kenyan qualified investors. Stockport is listed on the Toronto Stock Exchange and has mining interests in Nyanza Kenya where they are exploring along a prolific gold-hosting greenstone belt. Zeph Mbugua, the Chairman of TransCentury, became a director of Stockport in February this year. 
  • EDIT:  Swedfund, the Swedish state’s venture capital company, and The Africa Health fund through The Abraaj Group, a leading investor operating in global growth markets, made a $6.5 million investment in The Nairobi Women’s Hospital, a leading private healthcare provider for women and their families (men and children) in East Africa.

Shareholder Restructurings

  • Businessman Christopher Kirubi is acquiring an additional 32 million shares in Centum Investments (for ~$8.6 million) which will raise the stake he controls to about 30% and he has received an exemption from complying with the NSE requirement to make a takeover offer.
  • After listing at the NSE, I&M shareholders have done a swop to bring the company’s investor numbers past the 1,000 shareholder mark.
  • The WPP Group (through Cavendish) is increasing its shareholding in Scangroup from 33% to 50%.  WPP, the largest advertising group in the world, is strengthening its control of Kenya and the East African market ahead of the merger of the two other advertising firms – Omnicom the No 2. in the world  (owners of TBWA) and No. 3 – Publicis (of France)  – which, when combined, will be larger than WPP.

De-Listing’s – Companies leaving the NSE 

  • Access Kenya Group after their buyout by Dimension Data was approved by the Government
  • CMC is at the conclusion of a buyout offer from Dubai’s Al-Futtaim Group who are offering existing shareholders Kshs 13 a share, or about $90m. 
  • The Dubai-based conglomerate, which holds lucrative distribution rights for Toyota and Honda in its home market, will help the struggling Nairobi-based automotive group expand its brands beyond its existing stable, which includes Volkswagen, Ford, Mazda and Suzuki.
  • R.E.A. Trading, which owns 56% of Rea Vipingo Plantations has offered to buy out all other shareholders at a price of Kshs 40 per share, representing a 43% premium. The shares that have since been suspended from trading and will be delisted from the NSE if the deal succeeds.

Stalled Deals

  • There was a Financial Times (FT)  article on queues forming to buy up East African retailers but deal opportunities at Nakumatt and Naivas have been hampered by shareholder/family disputes that darken their buyout reputations and possibilities.